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  • Why US Economic Growth May Disappoint Again In 2015

    Our main topic today is how the US economy continues to disappoint expectations, and 2015 looks to be no exception. Forecasts for GDP growth this year continue to be downgraded, and there is at least a small possibility that the US economy is slipping into recession, as I will discuss below.

    But before we get into that discussion, let’s look at a few recent economic reports that are not encouraging. Retail sales that were expected to bounce in April were flat and have been trending lower since 2012. Consumer sentiment, which had reached the highest level since 2004 by the end of last year, dropped to a seven-month low earlier this month. And factory output slipped in April, the fifth monthly decline in a row.

    We will end today with a new article on the Trans-Pacific Partnership from the Wall Street Journal, which explains why I continue to support this controversial trade agreement.

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  • The Surging U.S. Dollar - Good For Some, Bad For Others

    The US dollar has been surging against most other currencies over the last year. The question is, is the rising US dollar good for the economy and the investment markets, or not? No doubt, the rising dollar has been buffeting the US equity and bond markets this year and is increasingly cited as the main culprit. That is what we will delve into today.

    Opinions differ whether a rising dollar is a net positive, or a net negative, for the US economy going forward. But as I will point out below, the strong US dollar is a good thing, despite what others may say. However, the main reasons why the dollar is surging may surprise you.

    The US dollar has risen about 33% from its low in April 2007. The euro is approaching a new low relative to the US dollar, reaching $1.05 last week, the lowest level since 2003. The euro could be at parity with the US dollar, or even less, very soon. But what does that mean for most Americans? We will answer that question today.

    At the end of today's letter, I will recommend that investors reduce exposure to equities or hedge long positions due to rising financial risks around the globe, which are reflected in the soaring US dollar. Be sure to read my analysis below.

    Before we get into that discussion, let’s look at some recent economic reports and data. We start with the results of the latest Wall Street Journal survey of over 60 economic forecasters. Next, we look at the wholesale price index which has now declined for the last four months. And then we look at retail sales which have declined for the last three months, well below expectations. Let’s get started.

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  • U.S. Debt Crisis End-Game Looms in 3-5 Years

    Today, the national debt has mushroomed to almost $16.5 trillion. It has exploded by over 60% just since President Obama took office, when it was at $10 trillion. At the end of 2012, our national debt exceeded 100% of GDP (104%) for the first time since WWII. By the end of Obama’s second term, our national debt will top $20 trillion at the rate it’s growing.

    We all know that at some point, this massive Ponzi scheme will come to an end. The only reason it has gotten to this point is because the US dollar is the world’s “reserve currency” which enables our government to print as much money as it wants. This will end only when foreign buyers of our debt decide to turn off the spigots. The only question is when.

    Last week, one of the most respected research groups in the world predicted that the US likely has only 3-5 years before the wheels fall off and the world is thrust into a major financial crisis, possibly even a depression.

    We’ll talk about all of these things as we go along today. But before we go there, let’s take a brief look at the economy before tomorrow’s advance (first) estimate of 4Q GDP.

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  • Will America Be Greece in Four Years?

    The US national debt topped $16 trillion last week, and it was almost as if no one paid attention. At the rate we are going, the national debt will top $20 trillion just four years from now in 2016. Despite four years of trillion-dollar budget deficits, the US economy remains stagnant with sub-2% growth in GDP – the worst post-recession recovery since the Great Depression.

    You would think that our leaders in both parties would figure out that trillion-dollar deficits are NOT the answer, and that they are the problem. This is not really a political issue, because both parties in Washington have been guilty of spending us into oblivion. The difference is, now we're talking about trillions, not billions.

    Last week, I read a great article in Forbes on what to do about the economy. I wish I had written it myself. But since I didn’t, I have reprinted it for you today. The author really tackles what it will take to turn our economy around. Not surprisingly, the author's suggested solution does not in any way look like President Obama's economic policies.

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  • GDP Report: "Good News" - You’ve Got to be Kidding!

    I must begin today by thanking you for the overwhelming reader response we received to last week’s E-Letter. It was the largest response we’ve had in several years. Obviously, I struck a nerve with many of my readers last week! I’ll fill you in as we go along.

    Following that discussion, we dissect last Friday’s controversial 2Q GDP report, which most found disappointing but some in the mainstream media found encouraging (ie – at least we’re not in a recession). From there, we’ll discuss the Fed’s latest monetary policy meeting that ends tomorrow.

    The stock markets rallied strongly last week, partly on perceived good news from Europe, and partly because of renewed expectations that the GDP report would be weak enough to move the Fed to enact QE3. We’ll know one way or the other tomorrow afternoon. If Bernanke fails to announce more QE, stocks could tumble again.

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  • Will the Bond Bubble Burst This Year?

    Today, there are more people invested in US bonds (of all types) and bond mutual funds and ETFs than ever before. The degree to which this shift from stocks to bonds occurred in the last few years is simply stunning. For the period from 2007-2011, ICI reports that a net total of $408 billion was redeemed from US equity mutual funds – that’s huge!

    A record $792 billion in new money was invested in US bond funds in 2007-2011. While not all of the equity outflows immediately went into bond funds, this represents a shift of over $1 trillion in five years! A shift of this magnitude has never happened before. Is this a signal that the bull market in bonds is just about over? Could well be.

    Today, we look at reasons why long-term interest rates could rise this year. While the Fed has promised to keep short-term rates near zero well into 2014, this doesn't mean that bond rates can't move higher this year. The US economy is improving, albeit very slowly, and inflation hit 2.9% in the 12 months ended in January, and the European debt crisis is far from over. These are not good signs for bonds.

    Bonds have been a terrific investment for the last several years, but the bull market is now quite long in the tooth. If you are overweight in bonds, I would highly recommend that you take some profits and consider moving that money to an actively managed bond program such as Wellesley Investment Advisors with the potential to make money whether bonds go up or down (no guarantees of course).

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  • You Can’t Go Home Again... Or Can You?

    Recent statistics from the US Census Bureau indicate that more adult children are either moving back with mom and dad, or never leaving in the first place. Studies show that this is not just a US phenomenon, but is also occurring across the globe. While it's easy to see that the economy is a major factor in this demographic shift, my focus this week will be on a possible silver lining.

    If adult children are moving back home due to lack of a job or not making enough money to make ends meet, this can be an excellent "teachable moment" for parents. The current economic environment is a way for parents to impart valuable wisdom about saving and investing to their adult children. While it's not always easy to get the attention of adult children, at least you won't have to convince them that rainy days happen since we're coming out of one of the worst economic storms we've ever seen.

    Obviously, it's better to start teaching children about saving when they are young. To help parents or grandparents of younger children, I have also included a discussion about the best ways to approach teaching kids about money, along with some valuable Internet resources to help you along.

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  • 72% Say US Headed in the Wrong Direction

    As is often the case, we will cover several different topics this week. We begin with some new Associated Press polls released last Friday. Lead among them is the poll which found that 72% of Americans now believe that the US is headed in the “wrong direction.” From there, we move on to the news that the so-called “Misery Index” rose to a 28-year high in September due to a higher than expected rise in the Consumer Price Index.

    Following that discussion, I will summarize the latest economic reports, most of which were disappointing, but there were at least a few bright spots. The key will be this Thursday’s first (advance) report on 3Q GDP. The pre-report consensus suggests a rise to 2.0-2.3% (annual rate) from 1.3% in the 2Q.

    Finally, I will address a political issue that is just beginning to make the rounds in the media. Namely that the Republican presidential hopefuls are gravitating to a “flat tax” and “jobs growth” agenda that could stand up very well against President Obama’s tax-and-spend, punish- success policies in the 2012 election. I think you'll find this discussion very interesting.

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  • 2011: More Questions Than Answers?

    IN THIS ISSUE:

    1.  More Questions Than Answers in the New Year

    2.  Long-Term Interest Rates: Correction or New Trend?

    3.  “A Fed-Induced Speculative Blowoff” by John Hussman

    4.  Will US Stocks Continue Higher in 2011?

    5.  Just Getting Back to Breakeven

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